Dear Penny: Should I Use My Savings to Pay Off My Boyfriend’s Payday Loan?

Last fall, my live-in partner of four years had to miss several weeks of work due to a car accident and a family member’s death. He got a few payday loans totaling around $1,300 to make ends meet.

He’s had to roll it over several times and now the balance is over $2,500. He can only afford the monthly charge each month to roll it over again.

We’ve always kept our money separate and split bills 50/50. My partner hasn’t been irresponsible with money in the past. It was just a string of bad luck that got him here.

I have $4,700 in savings for emergencies. Should I use that to bail him out of this nightmare? He hasn’t asked me for help, but I just want to put this behind us and get a fresh start. It does scare me to bring my emergency savings down so much, but this feels like the right decision. Would I be making a big mistake?

-Trapped

Dear Trapped,

What your partner is experiencing is absolutely an emergency. Even though you haven’t merged finances, you have merged your lives. So sooner or later, this is going to become your emergency, too.

Payday loans often advertise fees that seem reasonable, like $15 for every $100 you borrow. But for a two-week payday loan, that translates to an APR of nearly 400%. By comparison, even the highest credit card APRs are around 30%.

The exorbitant costs are designed to suck people in, just as they have your partner. The Consumer Financial Protection Bureau estimates that 70% of people who take out a payday loan will eventually take out a second within a month; about 1 in 5 will take out 10 or more.

If your partner is rolling over his payday loans, the balance and the fees will continue to skyrocket. Then it’s only a matter of time before he can’t afford his half of expenses.

The odds of this money coming out of your savings account — whether to pay off this balance or to foot his share of the bills while he pays it off himself — are pretty high here. So yes, I think it makes sense to stop the bleeding now and pay for it with savings to keep the balance from growing any larger.

Normally, I’m a proponent of not trying to save others when you can’t afford to save yourself. I’m not in love with the idea of you slashing your emergency savings by more than half. But I also get that when you’re dealing with payday loans, you don’t have any great options. You’re trying to choose the least terrible one.

I think what you’re seeing here is that it’s impossible to keep your finances separate when you combine lives with someone you love. Suppose your partner lost his job and couldn’t pay his half of the grocery bill — would you tell him to stay out of the fridge? The mine-is-mine, yours-is-yours approach just doesn’t work.

As soon as you’ve paid off this debt, your top priority is to replenish that emergency fund. He needs to contribute whatever he’s been putting toward the loan into your savings each payday.

Treat saving for an emergency as a shared goal. Keep building that savings account until you have at least three months’ worth of living expenses. That sounds daunting, I know.

But this is a long-term goal. Try breaking down what you need for a month, then dividing it by 30 to calculate your average daily expense. Your goal is to get to 90 days’ worth of bills. Maybe you can aim to save one day’s worth of expenses every week. Doing that, you’d get to this goal in less than two years.

What I want more than anything is for the two of you to break up with payday loans for good. Using your emergency fund will stop the bleeding for now. But only preventative medicine — in the form of steadily saving — will help you stay away from payday loans forever.